Demand for oil declining despite low prices: IEA
Oil prices tumbled Tuesday on a report from the International Energy Agency that global demand growth is shrinking, raising concerns over whether the economic boost from low fuel prices has run its course.
In its latest monthly oil report, the Paris-based agency signalled that the economy may have wrung dry any savings from prolonged low prices, saying “stimulus from cheaper fuel is fading” as the global supply glut persists.
“We’ve had two years now of this, so yes, the upward impact of demand from low oil prices is easing,” said Ann-Louise Hittle, an analyst with consultancy firm Wood Mackenzie.
While depressed prices have wreaked havoc on oil-dependent countries, cheaper fuel costs were largely seen as a buoy in the broader economy that would help spur much-needed activity.
Concerns over the fading appeal of cheaper fuel prices come as IEA data shows global oil demand growth shrinking.
Global oil demand growth peaked at 2.3 million barrels per day during the third quarter of 2015, and has been falling in 2016. Demand growth in the first quarter of 2016 was 1.6 million barrels per day, but slid to 800,000 barrels per day in the third quarter, according to IEA data.
The report helped push back October contracts for crude oil $1.39 to US$44.90 a barrel
However, average demand growth across 2016 of 1.3 million barrels per day is only 100,000 barrels per day lower than last month’s estimates, said Hittle, and falls in line with her the company’s estimates earlier this year.
“It isn’t particularly bearish in our analysis,” she said.
The IEA said demand growth in OECD countries has “all but vanished” during the third quarter of 2016, while Europe is stagnant and the Asian growth engines of China and India are showing signs of tapering.
Persistently high h supplies of oil and tepid global demand have kept markets out of balance in recent years. At its peak, oil markets had an excess supply of more than two million barrels per day.